Exponential Moving Average (EMA)
In short
Moving average that gives more weight to recent prices — reacts faster than SMA
Like a regular moving average but it pays more attention to recent prices. If a stock just had a big move, the EMA reacts faster than the SMA. Traders use EMA crossovers to spot trend changes early.
EMA applies exponentially decreasing weights to older prices. More responsive to recent price changes than SMA. Commonly used in MACD calculation (12-day and 26-day EMAs). Faster EMA crossing above slower EMA is a bullish signal.
Formula
EMA = Price × k + EMA(prev) × (1-k), where k = 2÷(n+1)Related concepts
- Simple Moving Average (SMA) — Take the last 50 days of prices and average them. That's the 50-day SMA. It smooths out daily noise so you can see the real trend. Price above its SMA = uptrend; below = downtrend.
- MACD — MACD compares two moving averages to show momentum. When the fast line crosses above the slow line, it's a buy signal. Cross below = sell signal. Like two runners — when the faster one pulls ahead, momentum is shifting.
- Moving Average Crossover — The golden cross (50-day crosses above 200-day MA) is one of the most famous buy signals. The death cross (50-day crosses below 200-day) is a sell signal. It's simple but followed by many professional traders.